Tokyo Cheap to Hong Kong Luring Asian Bargain Hunters

Property prices in major Japanese cities are still less than half their peak at the height of the bubble economy in the 1980s. Photographer: Tomohiro Ohsumi/Bloomberg

Aug. 5 (Bloomberg) -- When Julia Chang, a 48-year-old
Taiwanese who divides her time between Taiwan and Tokyo, decided
to diversify her family’s overseas investments, she settled on
real estate in the Japanese capital where prices have slumped
for two decades.

Chang, a former flight attendant, is looking to buy her
third apartment in Tokyo, which is increasingly attracting
foreign buyers after Prime Minister Shinzo Abe took office in
December with a pledge to end the deflation that’s depressed
real estate.

“Tokyo properties make a good investment because they are
relatively cheap,” said Chang in an interview at her 170
million yen ($1.7 million) three-bedroom apartment in central
Tokyo. “It’s a bargain.”

Asian investors like Chang are being lured by returns as
high as 8 percent on rental income and signs the property market
is recovering. The government’s resolve to keep the yen weak has
also made real estate in Japan more affordable compared with
Hong Kong, Singapore and Taiwan, where governments have been
struggling to contain surging residential prices.

“Japan is cheap considering how much property prices have
gained in Singapore and Hong Kong,” said Akihiko Mizuno,
international director and head of capital markets at Jones Lang
LaSalle Inc. “They expect to receive stable rental income and
also have an expectation that prices will rise.”

Relative Value

Home prices in Tokyo are around 120,000 yen to 150,000 yen
per square foot, according to Chicago-based Jones Lang LaSalle.
That compares with about 280,000 yen to 400,000 yen in Hong Kong
and 200,000 yen to 250,000 yen in Singapore, it said.

In New York, the average price per square foot for a
Manhattan condo is $1,381 or about 137,000 yen, according to
appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real
Estate. Homes in the best parts of central London sell for about
2,000 pounds ($3,100) a foot, with addresses in Chelsea,
Kensington and north of Hyde Park fetching about 4000 pounds,
CBRE Group Inc said in a June report.

Property prices in major Japanese cities are still less
than half their peak at the height of the bubble economy in the
1980s. The average price of a three-bedroom apartment in Tokyo
and surrounding prefectures rose 7.9 percent in June from a year
earlier to 48.3 million yen, according to the Real Estate
Economic Institute Co.

A unit of about 1,000 square feet (93 square meters) in
Taipei, Taiwan’s capital, costs about NT$19.5 million ($648,250)
in June, according to Taipei-based Sinyi Realty Co. The average
price of a new 1,000-square-foot condominium in Singapore is
between S$1 million ($784,000) and S$1.2 million, according to
Savills Plc. A 1,076-square-foot apartment on Hong Kong Island
cost an average HK$19.1 million ($2.5 million) at the end of
May, according to the Ratings and Valuation Department.

‘Restless Capital’

Investment in the luxury residential market that has driven
major Asian cities is now finding its way to Tokyo, said Sanjay
Verma, chief executive officer for the Asia-Pacific region at
broker Cushman & Wakefield Inc.

“The capital is very restless,” Verma said in an
interview in Tokyo. “If there is idle money sitting there, it
will find a way to get invested.”

Sinyi, Taiwan’s biggest listed real estate broker, started
selling properties in Japan to buyers from greater China --which
comprises Hong Kong, Taiwan, China and Macau -- in 2010 and has
tripled the number of properties sold in two years, said Kenny
Ho, Tokyo-based managing director at the realtor.

Sinyi handled 11.3 billion yen of properties in Japan in
the first six months of the year, exceeding the 8.6 billion yen
for the whole of 2012, Ho said. The yen’s weakening against the
dollar this year has made apartments in Tokyo about 15 percent
cheaper than last year, driving up demand, he said.

Drawing Winners

“It used to be that all we needed to do is to talk about
prices,” he said. “Now in some cases, our clients have to
enroll into a draw and compete with Japanese buyers to acquire
new properties.”

Bidding on new apartments is prohibited in Japan, so buyers
are entered into a public draw, a practice adopted during the
bubble era when homebuyers had to line up for days before a
property was put up for sale, according to Mitsubishi Estate
Co., the nation’s biggest developer by market value.

Chang’s $1.7 million apartment, located in Kojimachi in
Tokyo’s Chiyoda-ku, has a view of the Imperial Palace. An
apartment that has the same proximity and location with Chang’s
unit offers about 5.1 percent of return, according to an
estimate by Sinyi.

Buying Low

Chang, who married her husband 23 years ago, said she
wanted to diversify the family’s wealth by looking at investment
opportunities overseas.

“When making an investment, you want to buy when prices
are low and with relatively low risks,” said Chang. “That way,
it has more room for prices to go up. Besides, Tokyo is one of
the biggest cities in the world after all. Owning properties
here makes me happy.”

A one-bedroom apartment that costs less than 50 million yen
can offer a return of about 6 percent to 7 percent, while the
mortgage rate is at about 2.5 percent to 3 percent, Ho said.

CTBC Financial Holding Co., one of five Taiwanese lenders
with branches in Japan, said the number of mortgage loans and
the value of mortgage lending in the nation tripled in the first
half from the same period last year.

The bank is offering a floating mortgage rate of 2 percent
to 3 percent, which is tied to the one-month Tokyo interbank
offered rate, or Tibor, said Keiken Matsumoto, a Tokyo-based
mortgage loan officer at the bank.

Sales Seminars

The interest rate CTBC charges is higher than the about 1
percent being offered by Japanese banks because the risk of
lending to non-Japanese residents is higher, Matsumoto said. The
15 to 20 year lending period is shorter than the maximum 35
years offered in Japan partly because the borrowers tend to be
wealthy individuals who repay mortgages earlier, she said.

“Our clients feel that this is a market that is full of
potential,” said Matsumoto. “They see now as the timing to
invest and we are trying to match that demand from our
clients.”

Noticing the overseas interest, Jones Lang LaSalle has held
half a dozen seminars in Singapore since November, advertising
Japanese properties. The broker has so far sold more than 100
Tokyo homes, with prices from 40 million yen to as much as 200
million yen, for Japanese homebuilders, including Mitsubishi
Estate, Mizuno said.

The broker has also started marketing apartments in Japan
to Hong Kong investors following the success in Singapore,
Mizuno said. The company may triple its staff in charge of
international sales in Japan to match the rising demand, he
said.

Developers Benefit

Tokyu Livable Inc., a Tokyo-based broker which opened its
office in Shanghai in 2012, began to sell apartments overseas
for the first time this year after declining sales of luxury
units at home, according to Toshihiko Kitagawa, senior executive
director at the company. It has also conducted sales drives in
Singapore and Hong Kong, Kitagawa said.

“Developers weren’t used to going out of the country to
sell their properties,” he said, declining to provide sales
data. “We are selling quite well since the start of the year.”

Japan’s largest developers are set to benefit from rising
apartment sales, said Yoji Otani, a Tokyo-based analyst at
Deutsche Securities Inc. Sumitomo Realty & Development Co., the
third biggest, has the most land bank in greater Tokyo with the
potential for about 30,000 apartments to be built, said Otani.
Mitsui Fudosan Co., the second largest, and Mitsubishi Estate
have the capacity to build as many as 15,000 apartments on the
land they hold, said Otani, who has buy recommendations on all
three companies.

Mitsubishi Gains

Mitsubishi Estate on July 31 reported a 44 percent gain in
first-quarter profit after a sevenfold increase in profitability
at its residential business.

“Condo sales are buoyant,” Otani said in an Aug. 1
report. “This trend is not limited to Mitsubishi Estate.”

Completed condo inventory in the Tokyo metropolitan area is
at its lowest level since at least 2000, according to the Real
Estate Economic Institute.

New Homes

Japan’s housing starts rose for a 10th month in June, the
longest streak since the period ended December 1996, the
Ministry of Land, Infrastructure, Transport and Tourism said
July 31.

Prime Minister Abe’s pledge to end 15 years of deflation
through monetary easing by the Bank of Japan have helped bolster
consumer confidence, fueling expectations that property prices
will start rising.

Masayuki Taniguchi, a 51-year-old real estate broker,
spotted the trend early. Three years ago, he set up a homepage
in Chinese to sell properties in Tokyo to investors from Taiwan,
Hong Kong and China. He didn’t get any response until late last
year and has gotten about 200 inquiries since Abe took office in
December.

“At first, I was just stunned,” said Taniguchi, the
president of Mikuraya Co., a Tokyo-based hotel and home-share
operator. “I knew there was demand. I just couldn’t believe how
rapidly the situation changed. With Abenomics, people expect the
yen to decline, which makes the properties here cheaper to
invest for overseas investors.”

An apartment in Tokyo can generate returns of about 6
percent to 8 percent, Taniguchi said. After interest, the return
is about 3 percent to 5 percent, he said.

Apartments Preferred

Investors prefer apartments in Tokyo’s central five wards,
with a price tag of 40 million yen to 100 million yen because
they offer more stable rental income, said Taniguchi, who plans
to wind down his company’s hotel and home-share division and
focus on the brokerage for international buyers.

The supply of new apartments in the city’s metropolitan
area rose for two straight months in June, gaining 22 percent,
according to the Real Estate Economic Research Institute.

Sinyi’s sales in Japan will double this year as the
country’s economy heads for a recovery, Sinyi’s Ho estimates.

“The surge in sales we have seen has a lot to do with
Abenomics,” Ho said. “Even after the cost of borrowing, our
clients can get a rental income of at least 4 percent.”